Unlocking Private Investment in Climate Adaptation and Resilience

When Tropical Storm Urduja brought one meter of rain to the Philippines in just three days in December 2017, it caused significant damage to the electricity generation facilities of the country, reducing capacity by 50 percent at the power plant owned by Energy Development Corporation (EDC) Philippines. EDC Philippines realized that existing infrastructure was not resilient enough to evolving climate-related disasters, including record typhoon wind speeds and increasing amounts of rainfall.

To boost community resilience, EDC Philippines provided trainings on disaster response for schools, residents and local government officials in host communities, along with establishing an innovative network of first responders in project sites across the country. EDC Philippines also built its own resilience by embedding climate risk into decision-making and investing in critical points of infrastructure, with the support of a peso-denominated green bond issued by the IFC.

The case of EDC Philippines is but one critical example of private sector investment in building climate resilience, as documented in the new World Bank Group report: Enabling Private Investment in Climate Adaptation & Resilience: Current Status, Barriers to Investment and Blueprint for Action.

The report brings together IFC and World Bank teams to focus on how to boost adaptation finance from the private sector. It documents the main barriers that have stymied private investment in adaptation and lays out a systematic approach to address these barriers and close the adaptation finance gap.

The report proposes a blueprint for action to develop, finance, and implement priority adaptation and resilience investments— one driven by countries’ goals and national investment plans— that can help accelerate and scale up investment to address the needs of the world’s most climate-vulnerable communities and economies. The public sector plays a critical role in mobilizing private investment. Multilateral development banks, and the World Bank Group in particular, have an important role to play as conveners and facilitators for this approach to take root.

“Our new WBG report finds that by best existing estimates, of the total $30 billion spent on adaptation in 2017-18, only roughly $500 million--a mere 1.6%--came from private adaptation spending. Private sector investment in adaptation has remained conspicuously minimal,” said Dr. Arame Tall, lead author of the report. “Our report finds it is mission possible to mobilize private sector investment in adaptation and resilience, provided the right set of incentives, metrics, conducive policies and enabling environment, as well as a clearly articulated climate adaptation investment portfolio, are in place to attract private investors.”

Financing a climate-resilient future

Although climate adaptation finance flows have increased by 35% in recent years, they still fall short of what is needed to avoid severe economic and human impacts from climate change, especially in developing countries. Much remains to be learned about how to unlock and enable private capital to help finance national and local adaptation priorities, and how to build the business case for adaptation.

Research to date has identified barriers that constrain most developing countries’ ability to attract significant amounts of private finance to advance their adaptation agendas.  Compounded with limited clarity on the government’s capital investment gaps to achieve adaptation goals, and low perceived or actual returns on investment, this makes for the perfect recipe to stymie investor appetite in adaptation and resilience.

“The private sector has shown a willingness to invest in adaptation,” said Vladimir Stenek, Senior Industry Specialist at IFC and one of the co-authors of the report. “What is needed now is to provide an enabling policy and regulatory environment and create a pipeline of bankable projects that offer attractive investment opportunities.”

A blueprint for action to boost private investment in adaptation and resilience

The approach identifies five entry points to enable private investment in adaptation. These entry points are outlined below.

Blueprint for Action—Five Steps to Enable Private Sector Engagement in Climate Adaptation

The blueprint provides guidance and an engagement plan for governments to create an enabling environment as well as adapt business models for private sector investment in adaptation and resilience. The Bank Group will pilot this approach in several pilot countries from 2021 to 2023, supporting governments and development partners as they work with private sector stakeholders to incentivize private financing of projects to meet national and local adaptation needs. The report and the pilots are part of World Bank Group’s support towards enabling private investment in adaptation, which will focus on testing different entry points of the Blueprint across climate-vulnerable sectors.

Building on global policy initiatives to boost adaptation finance

Several initiatives have been launched in recent years to catalyze private sector investment in adaptation, including the Coalition for Climate Resilient Investment, the Global Adaptation and Resilience Investment Working Group, and the Global Environment Facility’s Challenge Program for Adaptation Innovation. This work will complement such initiatives and build on existing project preparation facilities for adaptation, including from the Green Climate Fund, the Global Environment Facility, the Global Commission on Adaptation, and others.

Post-COVID 19 recovery efforts also offer a renewed opportunity to engage private investors, as the financial sector becomes more aware of different types of risks that need to be addressed and increasingly searches for investment opportunities with measurable impact.

The ultimate goal of the joint report is to inspire national action to program adequate resources for adaptation and resilience, and further ground test the blueprint for action that global, regional, national and local adaptation stakeholders can use to mobilize as much private investment as possible to meet countries’ fast-growing needs in climate adaptation and resilience.